Contracts on Fire: Amazon’s Lending Library Mess

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Are any of the books in Amazon’s new e-book subscription/lending program properly there?

Earlier this month, Amazon launched its Kindle Online Lending Library as a perk for its best group of customers, the millions who’ve paid $79 per year to join Amazon Prime and get free delivery of their Amazon purchases. Under the Lending Library program, Amazon Prime members are allowed to download for free onto their Kindles any of more than 5,000 books. Customers are limited to one book per month and one book at a time – when a new book is downloaded, the old one disappears from the Kindle.

The program has caused quite a stir in the publishing industry, for good reason (as you’ll see).

First, let’s look at how books from some major U.S. trade publishers wound up on the Lending Library list.

Major Publishers Turn Amazon Down

Amazon approached the six largest U.S. trade book publishers earlier this year to seek their participation in the program. By all accounts, each refused. Small wonder. Publishers aren’t eager to allow Amazon to undermine the economics of the e-book market, representing the lone bright spot for the industry, by permitting an estimated two to five million Amazon Prime customers to start downloading e-books for free. So books from the Big Six publishers – Random House, Simon & Schuster, Penguin, HarperCollins, Hachette, and Macmillan – are not in the Library Lending program.

Amazon’s attempts to enlist the next tier of U.S. trade book publishers, major publishers that are slightly smaller than the Big Six, appear to have fared no better. Many, perhaps all, also refused.

No matter. Amazon simply disregarded these publishers’ wishes, and enrolled many of their titles in the program anyway. Some of these publishers learned of Amazon’s unilateral decision as the first news stories about the program appeared.

How can Amazon get away with this? By giving its boilerplate contract with these publishers a tortured reading.

Amazon has decided that it doesn’t need the publishers’ permission, because, as Amazon apparently sees it, its contracts with these publishers merely require it to pay publishers the wholesale price of the books that Amazon Prime customers download. By reasoning this way, Amazon claims it can sell e-books at any price, even giving them away, so long as the publishers are paid.

From our understanding of Amazon’s standard contractual terms, this is nonsense – publishers did not surrender this level of control to the retailer. Amazon’s boilerplate terms specifically contemplate the sale of e-books, not giveaways, subscriptions, or lending (Amazon does have a lending program that some publishers have authorized, but it’s a program that allows customers – not Amazon – to lend their purchased e-books). Amazon can make other uses of e-books only with the publishers’ consent.

Amazon, in other words, appears to be boldly breaching its contracts with these publishers. This is an exercise of brute economic power. Amazon knows it can largely dictate terms to non-Big Six publishers, and it badly wanted to launch this program with some notable titles.

Why did it matter so much to Amazon? It’s all about the Kindle Fire, and Amazon’s unexpected e-book device battle with Apple and especially Barnes & Noble. (More on that, in another post.)

Some Small Publishers Sign On, Without Authority

Now, let’s look at the publishers who did willingly sign on to the Kindle Lending Library. Many (but not all) of these are smaller, newer companies that devote their efforts to e-book and on-demand publishing. They signed licensing agreements with Amazon for a selection of their titles, providing for a flat annual fee per title.

While these publishers generally have the right to license e-book uses for many of their authors’ titles (just as most trade publishers do), our reading of the standard terms of these contracts is that they do not have the right to do so without the prior approval of the books’ authors.

Licenses are traditionally done on an advance-and-royalty basis. In this way, the interests of the author and the publisher are aligned: if the license pays off, both benefit. When a list of titles is licensed for a flat fee, however, interests can easily become misaligned, and opportunities for mischief abound.

For example, a publisher could cherry pick a selection of “loss leaders” to license for unlimited use in order to attract readers to the publisher’s other books. To avoid this conflict of interests, publishing contracts have for decades included an array of clauses intended to prevent a publisher from using cheap or free copies of one author’s books to promote another’s.

Under most (perhaps all) publishing contracts, a license to Amazon’s Lending Library is outside the bounds of the publisher’s licensing authority. This isn’t a minor matter – in order to protect the author’s interests, all publishers should be asking permission before entering into such a bulk licensing agreement, and most would need to seek a contract amendment to do so. For more on this, see the post of Simon Lipskar of Writers House at the AAR’s blog.

What to do if your book is in the program

If your book is in the Lending Library without your approval, we recommend that you:

1. Get in touch with your publisher (or ask your agent to do so) and say that you object to your book’s inclusion in the program without your approval and that you do not consent to have your work in any such initiatives without your prior authorization. This is fundamental.

2. Ask your publisher why your book is in the program. The publisher may be using the program to introduce your books to Amazon Prime customers with the hope that they’ll then come back to buy your other titles. Other publishers may be seeking to give some life to quiescent titles. Once you’ve heard your publisher’s rationale (it may be well considered and in your favor), you’ll have to decide whether you’d like your book to remain in the program.

If it’s a major publisher, however, you may learn that Amazon chose to include your work in its lending program over your publisher’s objections. If so, we expect that you will be compensated for the uses (Amazon is paying its regular wholesale price for the e-books from these publishers), but this may still not be in your best interests: Amazon, for its own reasons, has chosen to override your publisher’s marketing plan.

No matter what you decide to do, please be in touch – one of our attorneys would be happy to discuss the matter with you.

So, are any of the more than 5,000 books legitimately in the program? Probably. Amazon published 138 of the titles in the lending program, according to Publishers Lunch (subscription required). Other publishers may have gotten their authors’ permission, or may have unusual contracts that give them authority to enter into bulk licenses without their authors’ approval. If so, we’ve yet to learn of such arrangements.

More News

“Amazon has decided that it doesn’t need the publishers’ permission, because, as Amazon apparently sees it, its contracts with these publishers merely require it to pay publishers the wholesale price of the books that Amazon Prime customers download. By reasoning this way, Amazon claims it can sell e-books at any price, even giving them away, so long as the publishers are paid.”

Why would you care how much Amazon gets paid for something as long as you get your cut?

http://twitter.com/troilee Venessa G.

Because as people continue to think that books are only worth .99 or less, the author’s cut gets smaller and smaller. But Amazon is still making its money on its tablet and e-readers. It’s what this is going to lead to that is the problem.

Finrind

1. You are wrong to think that e-readers and the tablet are Amazon’s main revenue. Many sources analyzed the hardware and it’s most likely that Amazon is actually LOSING money on these sales (or making a very negligible profit).
2. What you fear is going to happen anyway, with lending or without. Indie books are already selling mostly for .99, and every day there is so many freebies that it’s impossible to even read the book descriptions, let alone samples.
With lending, you, authors, get a) a promotion which may lead to a sale or more sales through a word of mouth (provided the book is good), b) you get paid for doing this promotion as though you already sold the book.
So I’m really unable to see how authors may be suffering from this program.

Cijiware

Y’all better read this before you think the Amazon e-Lending System is so great for authors: An important “dissertation” by the agents association http://aardvarknow.us/2011/11/04/author-contracts-and-subscription-models/________

mrv

You’re wrong, we think ebooks should be priced somewhere around $10, not $1, and definitely not $15. We also think ebooks should be available for lending, and the agency cartel (err, publishers) should be able to figure how to do that. I think history is going to teach them a very serious lesson…

Alexander Marciniak

Given that every ‘sale’ of an ebook is pure profit (No need to print, bind, transport, stock, pay bookstore workers, etc) I think that $1 is a very reasonable amount of money to pay. Of course it’s completely understandable why the cartels are nervous, technological advances have outdated their business model.

WritesKidsBooks

No not every sale of the e-book is pure profit. As an indie author I can tell you that to put together a decently produced professional quality e-book will cost you somewhere between two and $5000. So you’ve got a sell a heck of a lot of .99 books to make any profit.
It does seem like authors are the ones that may be losing in this Amazon lending deal. However, people should check out Neil Gaiman’s video on YouTube about the subject of pirating books and how he has seen it increase in sales when his books were pirated. Libraries, lending and free books may in fact help authors in the long run.

Promethee Feu

No, we think ebooks (you know, the ones that cost nothing to produce after the writing is done) are appropriately priced around 99 cents or less. Their worth is a completely different issue. I value some books at much higher than their sale price (and so I buy them) and I value some books at lower than their sale price (and so I don’t buy them). Authors need to get over their feeling of entitlement and learn to compete in the marketplace just like everyone else.

Promethee Feu

“Amazon has decided that it doesn’t need the publishers’ permission, because, as Amazon apparently sees it, its contracts with these publishers merely require it to pay publishers the wholesale price of the books that Amazon Prime customers download. By reasoning this way, Amazon claims it can sell e-books at any price, even giving them away, so long as the publishers are paid.”

Why would you care how much Amazon gets paid for something as long as you get your cut?

http://twitter.com/troilee Venessa G.

Because as people continue to think that books are only worth .99 or less, the author’s cut gets smaller and smaller. But Amazon is still making its money on its tablet and e-readers. It’s what this is going to lead to that is the problem.

Finrind

1. You are wrong to think that e-readers and the tablet are Amazon’s main revenue. Many sources analyzed the hardware and it’s most likely that Amazon is actually LOSING money on these sales (or making a very negligible profit).
2. What you fear is going to happen anyway, with lending or without. Indie books are already selling mostly for .99, and every day there is so many freebies that it’s impossible to even read the book descriptions, let alone samples.
With lending, you, authors, get a) a promotion which may lead to a sale or more sales through a word of mouth (provided the book is good), b) you get paid for doing this promotion as though you already sold the book.
So I’m really unable to see how authors may be suffering from this program.

Cijiware

Y’all better read this before you think the Amazon e-Lending System is so great for authors: An important “dissertation” by the agents association http://aardvarknow.us/2011/11/04/author-contracts-and-subscription-models/________

mrv

You’re wrong, we think ebooks should be priced somewhere around $10, not $1, and definitely not $15. We also think ebooks should be available for lending, and the agency cartel (err, publishers) should be able to figure how to do that. I think history is going to teach them a very serious lesson…

Alexander Marciniak

Given that every ‘sale’ of an ebook is pure profit (No need to print, bind, transport, stock, pay bookstore workers, etc) I think that $1 is a very reasonable amount of money to pay. Of course it’s completely understandable why the cartels are nervous, technological advances have outdated their business model.

WritesKidsBooks

No not every sale of the e-book is pure profit. As an indie author I can tell you that to put together a decently produced professional quality e-book will cost you somewhere between two and $5000. So you’ve got a sell a heck of a lot of .99 books to make any profit.
It does seem like authors are the ones that may be losing in this Amazon lending deal. However, people should check out Neil Gaiman’s video on YouTube about the subject of pirating books and how he has seen it increase in sales when his books were pirated. Libraries, lending and free books may in fact help authors in the long run.

Promethee Feu

No, we think ebooks (you know, the ones that cost nothing to produce after the writing is done) are appropriately priced around 99 cents or less. Their worth is a completely different issue. I value some books at much higher than their sale price (and so I buy them) and I value some books at lower than their sale price (and so I don’t buy them). Authors need to get over their feeling of entitlement and learn to compete in the marketplace just like everyone else.

http://twitter.com/dwightokita Dwight Okita

How do you access the Amazon Lending Library to see if your book is included?

http://twitter.com/dwightokita Dwight Okita

How do you access the Amazon Lending Library to see if your book is included?

Gill James

Surely it should be possible for Amazon to include royalty stream to both publisher (who would hopefully pass a good portion on to authors) and indie authors. Would take a good programmer very little time to set this up. And this would be very fair all round.

Gill James

Surely it should be possible for Amazon to include royalty stream to both publisher (who would hopefully pass a good portion on to authors) and indie authors. Would take a good programmer very little time to set this up. And this would be very fair all round.

http://www.thepassivevoice.com/ Passive Guy

If Barnes & Noble announced it would give a free copy of one of an author’s books to any customer who purchased $79 worth of merchandise from a Barnes & Noble store, would the author or his/her publisher complain?

Barnes & Noble has purchased the book and can set the price at which it sells, including setting the price at free. Why would the author or his publisher object? The publisher is selling thousands and thousands of books to Barnes & Noble as a result of this promotion and gaining incredible exposure for the book and the author with thousands and thousands of readers.

Is there any author who would object if BN gave his/her book this kind of promotion?

Why is Amazon any different?

http://www.thepassivevoice.com/ Passive Guy

If Barnes & Noble announced it would give a free copy of one of an author’s books to any customer who purchased $79 worth of merchandise from a Barnes & Noble store, would the author or his/her publisher complain?

Barnes & Noble has purchased the book and can set the price at which it sells, including setting the price at free. Why would the author or his publisher object? The publisher is selling thousands and thousands of books to Barnes & Noble as a result of this promotion and gaining incredible exposure for the book and the author with thousands and thousands of readers.

Is there any author who would object if BN gave his/her book this kind of promotion?

Why is Amazon any different?

Joel Hruska

So let me get this straight:
Every time I borrow a book, Amazon *buys* a copy from you. Your revenue stream isn’t impacted in the slightest. You receive exactly the same amount of money.

And you’re trying to spin this as if you’re being *abused*?

Please.

Joel Hruska

So let me get this straight:
Every time I borrow a book, Amazon *buys* a copy from you. Your revenue stream isn’t impacted in the slightest. You receive exactly the same amount of money.

And you’re trying to spin this as if you’re being *abused*?

Please.

Anonymous

Amazon pays monthly royalties, on time, without threat of lawsuit. That is refreshing as many publishers pay royalties semi-annually but only after credible threat of lawsuit.

As I understand it, when Amazon “lends” a book, it buys on at the publisher’s price; if the book is “returned” which is to say deleted from the borrower’s Kindle, Amazon buys another copy of the book — at least that’s my understanding. If that is not so, then we do have an issue here, but I cannot imagine why I should object to Amazon buying copies of my books and giving them to readers.

Perhaps I simply have misunderstood the issue?

Jerry Pournelle
Chaos Manor

Anonymous

Amazon pays monthly royalties, on time, without threat of lawsuit. That is refreshing as many publishers pay royalties semi-annually but only after credible threat of lawsuit.

As I understand it, when Amazon “lends” a book, it buys on at the publisher’s price; if the book is “returned” which is to say deleted from the borrower’s Kindle, Amazon buys another copy of the book — at least that’s my understanding. If that is not so, then we do have an issue here, but I cannot imagine why I should object to Amazon buying copies of my books and giving them to readers.

Perhaps I simply have misunderstood the issue?

Jerry Pournelle
Chaos Manor

http://www.jacobaaron.net DotPdf

So if I get a book for free on the Amazon Lending Library publishers get paid as if I purchased the book? Lets say I took a new book out next month. I would no longer have access to that book anymore. Publishers actually come out ahead in this deal.. Their essentially getting paid full price for me being able to view a book in a one month period… and you’re complaining?

Oh.. have you ever heard of a library?

http://www.jacobaaron.net DotPdf

So if I get a book for free on the Amazon Lending Library publishers get paid as if I purchased the book? Lets say I took a new book out next month. I would no longer have access to that book anymore. Publishers actually come out ahead in this deal.. Their essentially getting paid full price for me being able to view a book in a one month period… and you’re complaining?

Oh.. have you ever heard of a library?

Anonymous

This post describes nothing to lead the reader to believe that Amazon is taking advantage of the author or publisher. You argue that Amazon did not get your consent for this alternative lending program, but I don’t see where you are getting ripped off. Perhaps include a table or chart showing the profit difference with or without the lending program. You are asking authors to object to a new program without clearly laying out the problems being claimed. Judging by the comments here, nobody is buying into this argument either…

Anonymous

This post describes nothing to lead the reader to believe that Amazon is taking advantage of the author or publisher. You argue that Amazon did not get your consent for this alternative lending program, but I don’t see where you are getting ripped off. Perhaps include a table or chart showing the profit difference with or without the lending program. You are asking authors to object to a new program without clearly laying out the problems being claimed. Judging by the comments here, nobody is buying into this argument either…

Havemersey

With ebooks, authors and publishers expect to make money on EVERY reading of a book. Yet in conventional publishing, authors have historically “lost” royalties on the second-hand book market. Someone buys a book, for which the author receives royalties. Later they buyer sells (or trades) the book to a second-hand bookstore or at a garage sale, or perhaps lends it to a friend, donates it to charity event or drops it off at a nearby senior center. The author and publisher have never received royalties on these subsequent uses. The argument that lending ebooks will diminish profits is bogus, especially in light of the fact that the absence of hard costs (paper, printing, distribution, etc. ) significantly reduce the cost of publishing.

Havemersey

With ebooks, authors and publishers expect to make money on EVERY reading of a book. Yet in conventional publishing, authors have historically “lost” royalties on the second-hand book market. Someone buys a book, for which the author receives royalties. Later they buyer sells (or trades) the book to a second-hand bookstore or at a garage sale, or perhaps lends it to a friend, donates it to charity event or drops it off at a nearby senior center. The author and publisher have never received royalties on these subsequent uses. The argument that lending ebooks will diminish profits is bogus, especially in light of the fact that the absence of hard costs (paper, printing, distribution, etc. ) significantly reduce the cost of publishing.

http://twitter.com/jakerome Jake Rome

Hear hear! With forward thinking logic like this, you’ll be unstoppable once you team up with the Buggy Whip Manufacturer’s of America.

http://twitter.com/jakerome Jake Rome

Hear hear! With forward thinking logic like this, you’ll be unstoppable once you team up with the Buggy Whip Manufacturer’s of America.

DavidJE

My family buys a book
All three of us read it

I’m much more likely to buy books from authors I know than from authors I’ve not. How do I learn to like new authors? Well, I borrow a book!

Yet you think that we should buy three copies of the same book so we may use eReaders? Don’t kid yourselves. Join us in the 21st century before you lose your customers to authors who provide entertainment, knowledge, and value.

Adapt. You can afford to make a little bit per read in order to interest potential customers in your entire bodies of work!

DavidJE

My family buys a book
All three of us read it

I’m much more likely to buy books from authors I know than from authors I’ve not. How do I learn to like new authors? Well, I borrow a book!

Yet you think that we should buy three copies of the same book so we may use eReaders? Don’t kid yourselves. Join us in the 21st century before you lose your customers to authors who provide entertainment, knowledge, and value.

Adapt. You can afford to make a little bit per read in order to interest potential customers in your entire bodies of work!

Ann grifalconi

I was requested by the editor of my very large first tier publisher to have an awarded book I had collabrated upon, to agree to put this title on the Amazon Kindle( color) reader’s
” launch” @25% ( for my half/ 25% for the other author). As yet, I have received no advance against this arrangement-nor further word from the publisher that the deal ever actually went through.

Evance

I have to thank you guys. Since the publishers didn’t want to be part of the lending program, Amazon opened it to independent authors. In Dec I made $1.70 per borrow. In Jan I made $1.60. That adds up to about $1,850 in total. I get it all. I doubt I would have made as much if Patterson, Grisham, or Roberts were in the lending pool.